Sun Life Financial will control one of private real estate’s largest private real investment management businesses next year, after it agreed to buy a major share in a merged platform between its own existing property manager and one of private equity real estate’s best-known brands.
The Toronto based insurer’s Bentall Kennedy, which is owned by its investment management division, has merged with GreenOak Real Estate, a manager of higher risk and return real estate strategies. The joint business will have approximately $47 billion of assets under management across the US, Canada, Europe and Asia and across core, core-plus, value-add and opportunity risk-return strategies, as well as real estate debt.
The transaction, which values the new Bentall GreenOak at $940 million, ranks among the highest values for a real estate investment management business in history. It dwarfs the $450 million that Colliers International Group, the property services firm, paid for a 75 percent stake in Harrison Street Real Estate Capital, another private equity real estate business with $14 billion of assets, in May. The value of Bentall GreenOak also matches the $940 million price that CBRE, the world’s biggest property services firm, paid for ING Real Estate Investment Management, in 2011.
“This transaction is right on strategy, broadening our asset management pillar by expanding the capabilities of our alternatives manager, Sun Life Investment Management,”
Dean Connor, Sun Life
That transaction saw the formation of a $100 billion assets business, much of it held in core, open-ended structures. The controlling interest in GreenOak, however sees the creation of a business about half the size, with the approximately $11 billion of assets inherited from GreenOak in limited-life vehicles and carrying higher risk-return profiles. GreenOak has been among the private real estate market’s best performing firms, however: as of March 31, the firm’s first two fully realized funds, Japan Fund I and US Fund I, generated net internal rates of return of 33 percent and 32 percent and equity multiples of 1.6x and 1.7x respectively, according to an investor note.
“This transaction is right on strategy, broadening our asset management pillar by expanding the capabilities of our alternatives manager, Sun Life Investment Management,” said Dean Connor, the president and chief executive of Sun Life Financial in a statement. “Combining the strengths of two leading and globally respected real estate investment managers will bring clients a broader range of investment solutions that include core, core-plus and value-add real estate, plus senior and tactical real estate debt strategies across North America, Europe and Asia.”
As well as an operation with more than 700 investors and teams spread over 14 offices, the merger also sees a raft of new senior positions. The conjoined business will be led by Bentall Kennedy’s Gary Whitelaw as chief executive. GreenOak’s Sonny Kalsi will become president and John Carrafiell will become senior managing partner of its Europe and UK platforms. “As members of the combined leadership team have worked together before, and given our extensive discussions over many months, we believe we share very similar investment practices, underwriting discipline, and client-centric cultures,” said Whitelaw in another statement.
“The mission-critical element in any combination is ensuring that the leadership team and the teams directly managing the investment programs and assets on the ground are able to remain focused on creating value and managing risk.”
Sonny Kalsi and John Carrafiell
“The mission-critical element in any combination is ensuring that the leadership team and the teams directly managing the investment programs and assets on the ground are able to remain focused on creating value and managing risk,” said Kalsi and Carrafiell in a joint statement. “This combination of like-minded and compatible firms uniquely allows us to do that – with our clients and fund investors working with the same local specialists with whom they have been working for many years.”
Kalsi, Carrafiell, GreenOak’s other senior management and Tetragon Financial Group, which is traded on the Euronext Stock Exchange, will receive $146 million in exchange for a 56 percent interest in the combined business, and will retain the remaining share. The sale should represent a significant windfall for them, particularly for Kalsi and Carrafiell, the former Morgan Stanley senior executives who started the firm in 2009. According to PERE’s previous coverage, Tetragon’s initial investment in GreenOak was $10 million in working capital and a general partner co-investment of $100 million. In its own announcement, Tetragon said it expects to receive $42.5 million upon closing the merger with the deal expected to finalize in the first half of next year.
Bentall Kennedy and Sun Life Investment Management were advised by Berkshire Global Advisors and Evercore advised GreenOak Real Estate.
PERE interviewed GreenOak’s founders in October. To read the interview, click here.